18 October 2014

Corporate Purpose

In the wake of the financial crisis, many companies have been re-examining their corporate purpose. Some have moved away from the sole focus on shareholder value which dominated in previous decades. A growing number are recognising the need to widen their corporate purpose to include a business’s total contribution to society and not just the financial returns it produces.

Society is changing and, whether through the instant pressures generated by social and traditional media, businesses are only sustainable if they have a societal permit to operate. Any shortfall can be commented on by millions and serious disapproval can lead to direct action as with the impression that big business does not pay its fair share of tax.

The disconnect between society and business has expanded, if anything, and, despite the 2006 Companies Act redefining a board’s duties to take into account the interests of all stakeholders including employees, customers, suppliers and the community at large, still many boards seem to concentrate on the interests of shareholders, often at the expense of the other stakeholders.

This week I attended a panel discussion on Corporate Purpose – how society’s expectations are affecting change. Organised by PwC for Non-Executive Directors it brought together some interesting speakers who are at the forefront of encouraging boards to embrace the need to redefine their corporate purpose to reflect the wider social good.

In 2012, Vincent Nichols, Archbishop of Westminster, assisted by Charles Wookey, led the development of a blueprint for better business which suggests corporate business should be driven by five key principles:

Being honest and fair with customers and suppliers

Being a good citizen

Having a purpose which delivers long-term sustainable performance

Being a responsible and responsive employer

Being a guardian for future generations

Charles Wookey now acts as CEO of a Blueprint for Better Business[i], which is a movement of both business and civil society supported by a new charity – the Blueprint Trust. He suggested that ‘purpose’ could have two meanings. For many, it may just be the objective. But we should look for more than that. He quoted a Frenchman who struggled with the lack of a suitable word in the English Language. “Where is the finalité?” he mused. “When I look in the English dictionary I just find ‘raison d’être’.”

There has been a breakdown in trust and the response to corporate failures has just been more regulation which has been shown to be ineffective. The Blueprint is seeking to promote a different way. It has taken two years to write but the defining purpose has to include the dignity and value of people and the common good. From this one can see that success will depend on the deep formation of people of character.

I spent seven of my formative years with Mars Inc and they also advocate five key principles: “TheMars Five Principles of Quality, Responsibility, Mutuality, Efficiency and Freedom are the foundation of our culture and our approach to business. They unite us across geographies, languages, cultures and generations.

Our Five Principles are synonymous with Mars and have been guiding Mars Associates throughout most of our company’s history. Every day, we do our best to put our principles into action through our work and our relationships with our consumers, customers, business partners, communities and one another. “[ii]

Mars did not need the 2006 Companies act nor a mounting pile of reports and increases in regulation to adopt these. They just needed the inspiration of a great founder and to instil these principles in everyone they hired. But perhaps it was easier as it’s a privately held company and the shareholders were all round the board room table.

Tony Manwaring is the CEO of Tomorrow’s Company, founded some 20 years ago after work by the Royal Society of Arts, Manufactures and Enterprise of which I am a Life Fellow. He began by quoting Bobby Kennedy’s famous 1968 campaign speech on the shortcomings of GDP:

“Even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction - purpose and dignity - that afflicts us all.

Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.

It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.

It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.

And it can tell us everything about America except why we are proud that we are Americans.

If this is true here at home, so it is true elsewhere in the world.”[iii]

Of course, the main thrust of the speech was Kennedy’s attack on the Vietnam War and his call to negotiate for peace. I was living in the USA at the time and clearly recall its impact. Less than three months later he was dead, assassinated like his brother. But it is legitimate to make the analogy that a business is more than a set of numbers just as a nation is more than a set of numbers.

Tony also referenced the late, great Ray Anderson who for many years was the only high profile CEO of a business who had embraced the idea that his business should have zero negative impact. Before he died he had addressed the Unilever board which may have inspired them to hire Paul Polman as CEO who has embraced the same ambition for Unilever.

For Tony a company’s higher purpose needs to be firmly rooted in morality, focused on authenticity and translated into personal engagement. He challenged the Non-Executive Directors in the room to ask themselves what their business was for and see if their colleagues gave the same answer. As a supplementary question, if we weren’t here what would be missing from society?

Roger Steare is Corporate Philosopher in Residence at Cass Business School. He thought that the corporate purpose was often out of step owing to a series of half-truths and untruths and gave some examples:

We say we are self-interested rationalists but there can be a conflict between our self-interest and our altruism.

We say our purpose is to make money but this is the outcome of our enterprise and indeed there are many examples of sustainable social enterprises.

We say our reporting and accounting standards measure everything, but in fact only a few of the necessary actions are so measured as work like the Balanced Scorecard shows.

We think that success can be defined by exponential growth but eventually this defies the laws of physics and mathematics.

We think we can treat humans like robots and tell them we just need to make the numbers, when in reality there is no such thing as control in human relationships.

The corporate purpose has to be human and sustainable, not robotic and rapacious. When assessing character we should look at the formation of moral values and these include love, justice and courage, not common words in the vocabulary of the C-suite. Roger thinks that many of the errors of judgement and decision making are because leaders don’t just spend enough time. Leadership needs to be non-hierarchical, creative, empowering and customer focused.

As for cultural change, this was a difficult concept for many, but as most executives say they spend 70% of their time in meetings, then meetings would be a good place to start.

There is always a PwC partner on such panels and this time it was Tracey Groves who leads their Ethics practice. She observed that before you had any hope of restoring public trust in your business you had to trust yourselves. A corporate purpose had to be for the social good, not just shareholder value. Businesses need to develop to the point where doing the right thing was the only option. “We’re here to do what we’re here to do.” She also proposed a few questions:

How does the business articulate its corporate performance beyond words?

Is there recognition of realising corporate purpose and how do you know?

Does management know that corporate purpose is more than having a mission statement?

A lively session of Q&A followed. One NED thought that this was not a new story and we had been following this journey for a long time. He asked for examples of hope. The panel largely disagreed and thought there had been a change in public attitudes. One example of hope was Paul Feeney at Old Mutual who started by articulating a new purpose for the business. He then evaluated his current product range against that purpose and realised that 90% of it did not stand up. To discontinue all of those was not an option as they would go out of business but they were now committed to gradual change over time.

Another wondered if the Joint Stock Company had had its day. Roger Steare certainly thought so as for him the Joint Stock Company was rooted in feudalism, but there are many examples of long standing companies with good social purpose. The John Lewis Partnership is often the poster boy here with its purpose of 'the happiness of the partners', i.e. the employees who are also the owners. But the problem is that JLP is unique because there was only one John Spedan Lewis who after a serious accident saw the epiphany and gave all his shares in perpetuity to the employees in Trust. But the best advice was to think of the business as a community of people.

There was a good debate about changing behaviour. It is not what but how and here we see a disconnect between the top and bottom of companies. People need to know that it’s OK to say no. It’s OK to turn down business. When did you last reward someone who turned down business for the right reasons, such as refusing to offer a bribe?

There was a rather dismal discussion over whistle-blowers. Their importance was recognised but none of the panellists knew of a case where a whistle-blower had not been badly damaged by the experience. The recent revelations about Tesco’s over-statements of future earnings came from a whistle-blower. It will be interesting to see what happens as that case unfolds.

Finally it was pointed out that there could be ambivalence over stakeholders as the same individual could be an employee, a customer and a shareholder. Ultimately ethics is the choice between our conflict of desire.